The NSW government’s $5.3 billion electricity sale will not affect the state’s prized AAA credit rating, although its move back into the coal mining business will be closely watched by ratings agencies.

Treasurer
Eric Roozendaal
said one of the key objectives for the government in selling off its energy retail businesses and the right to trade electricity from its power stations was to protect its rating. Mr Roozendaal is in New York to meet Moody’s analysts this week.

There had been some concern that the government’s decision to sell only some of the assets to
Origin Energy
and
TRUenergy
this week and the dramatic finale to the sale – when eight of 11 directors on two state-owned energy companies resigned -- might affect its rating.

Standard & Poor’s and Fitch Ratings said yesterday, however, that the partial sale would have no impact.

S&P analyst
Anna Hughes
said progress on the sale of the government’s two remaining assets – the Macquarie Generation and Delta Coastal gentrader contracts which could be worth as much as $2.5 billion – would be closely watched. The government hopes to sell those by February.

Ms Hughes also said S&P would keep an eye on costs associated with the government’s construction of the Cobbora coalmine, which is expected to cost $1.3 billion over six years, and its contracts to supply fuel to the power stations.

As part of the electricity privatisation, the government has been forced back into the mining business, eight years after selling out, after negotiations with a private sector operator failed earlier this year. Securing fuel supply for the power stations was a key requirement of bidders in the sale.

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Some analysts are concerned that the government has locked itself into 17-year, low-priced coal supply contracts in a bid to get the transaction away.

Mr Roozendaal said the costs associated with the mine would come out of the sale proceeds. “We’ve agreed to take on Cobbora to ensure coal at a reasonable price for the taxpayers of this state," he said at the sale announcement. “Our intention is not for the government to stay in that business. Once it’s developed, our intention is to on-sell it."

He said some proceeds would be set aside to protect the government from any future liabilities related to the sale, raising questions about whether the headline $5.3 billion figure was a true reflection of the value of the transaction.

“We’ve got in place a set of agreements around all of the trans­actions," Mr Roozendaal said, without giving any more details.

“Proceeds are retained to protect the generators as part of the contractual arrangements."

The renewed focus on Cobbora comes as the NSW opposition raised concerns about the state of the government’s finances. The government released its mid-year budget review this week but it didn’t include the impact of the electricity asset sale.

“It is surprising the electricity transaction was not considered a significant variation to the original projections," shadow treasurer
Mike Baird
said in a letter to Treasury secretary Michael Schur yesterday.

Mr Baird said the state-owned energy companies were forecast to hand over $6.4 billion in dividends and tax equivalents to the government over the next four years. But those would now be “revised downwards substantially", he said.

“My concern is that as a result of these transactions the budget may already be in deficit."

The Coalition has said it will hold a judicial inquiry if elected in March.

Mr Baird’s comments were nonsense, a spokesman for the Treasurer said. “The strong transaction result, which was significantly above retention value, means the state budget will actually be in a better position," he said.